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Corporate - Overseas Borrowings


Will corporates take IDR route?

Richa Mishra

New Delhi , March 3

WHETHER companies incorporated outside India would actually cash in on the Indian Depository Receipts (IDRs) route remains to be seen. Experts feel that it is still a relatively new concept and only time will tell what type of companies it will attract.

After almost two years of tossing the issue between the Department of Company Affairs (DCA) and Department of Economic Affairs (DEA) on who is going to monitor IDRs, DCA or the capital market regulator, the Securities and Exchange Board of India (SEBI), the Government has finally notified IDR norms. The power to monitor it now lies with SEBI.

On what prompted the department to go ahead with such norms, DCA sources said, "As prescribed under Section 605A of the Companies Act, we have made the rules."

Speaking to Business Line, Mr Shardul S. Shroff, Managing Partner, Amarchand Mangaldas, said, "Companies in software and biotech sector would be initially attracted for raising funds through IDRs. In fact, companies such as Sterlite and Infosys, who have a presence in the international market could also make use of this route."

The moot question, however, remains whether big corporates would be interested in raising funds from the Indian capital market, said Mr H.V. Lodha, Partner, Lodha & Co. The norms themselves curb the entry of medium segment companies.

"The entry of foreign companies would largely depend on which brand attracts the Indian market. Only well-known brands such as IBM would be acceptable to Indian market, but whether such companies would be interested is to be seen," he added.

According to Mr Kamlesh Vikamsey, Vice-President, Institute of Chartered Accountants of India, "Basically those companies who would like to establish business in India would be interested. It would be difficult to say how many would come forward, as a lot will depend on the cost of raising funds in India vis--vis abroad."

However, raising IDRs would not be easy for the companies. Besides, the stringent entry norms, the rules prescribe for penal provisions for contravention of rules. As per the norms, the company and every officer of the company, who is in default would be punishable with the fine that may extend to twice the amount of the IDR issue.

In situations where the contravention is a continuing one, a further fine of Rs 5,000 every day, would be imposed during the period of contravention.

The norms would be applicable to only those companies incorporated outside India, whether they have or have not established any place of business in India.

Further, the Companies (Issue of Indian Depository Receipts) Rules, 2004, also elaborates on the documents to be delivered by the merchant banker to the issue of IDRs to SEBI and the Registrar of Companies, New Delhi.

The IDR norms also outline continuous disclosure requirements.

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